Criminal Justice

ADMINISTRATIVE AGENCY STATUTORY INTERPRETATION

DECHERTLLP V. COMMONWEALTH. A REMINDER TO COMMONWEALTH JUDGES TO STAY OUT OF THE KITCHEN IF THEY CAN'T HANDLE THE HEAT OF

INTERPRETING COMPLEX AREAS OF ADMINISTRATIVE LAW

I. INTRODUCTION

A constant battle that has existed between courts and administrative agencies in regard to the judicial review of administrative action is the allocation of power.' A common justification for the way that power is in fact allocated is embedded in efficiency and expertise.^ If courts were to independently review each and every administrative action, the result would be an overloaded docket of "lawsuits [that would] fmstrate" the judicial process.'' As Justice Brandeis of the Supreme Court of the United States simply put it, "there is a limit to the capacity of judges."'' Justice Brandeis spoke in general terms here, suggesting that agencies are the experts in their respective fields and that judges lack such expertise.^ That being said, when the area of law involved consists of technologically-complex concepts, the need for judicial deference to agency determinations is even more critical.

Complex, technology-related areas of law that require a specialized understanding of a certain technology are best left to

' Reuel R. Schiller, The Era of Deference: Courts, Expertise, and the Emergence of New Deal Administrative Law, 106 MiCH. L. REV. 399, 430 (2007).

' Id.; see, e.g.. Chevron, U.S.A., Inc. v. Natural Res. Defense Council, Inc., 467 U.S. 837, 865 (1984) (basing the decision to defer to agency conclusions of law on the agency's expertise).

^ Schiller, supra note 1 (quoting St. Joseph Stock Yards Co. v. United States, 298 U.S. 38, 88 (1936) (Brandeis, J., concurring)).

"• St. Joseph Stock Yards Co., 298 U.S. at 81 (Brandeis, J., concurring). ^ See id

All,

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the legislature.^ It is not within a judge's education and training to adequately understand such areas of law to a level beyond what the legislature and agency provides to him or her as guidance. Therefore, when, as in Dechert LLP v. Commonwealth,^ a statute in such a complex context is unclear as to its applicability, and a court is required to engage in extensive statutory constmction,^ it is imperative for that court to take all of the necessary steps to uncover the legislative intent behind the statute—including resorting to nonlegal expressions of intent—before refusing deference to the agency.

In Dechert LLP v. Commonwealth, the Supreme Court of Pennsylvania held that, despite the statutory definition's lack of clarity, canned software qualifies as tangible personal property that is subject to sales tax.^ The statute need not list all possible examples of tangible personal property when it includes language such as "including, but not limited to;" this language is broad and all-inclusive, thus allowing unmentioned items like canned software to fall within the definition of tangible personal property.'" Further, the fact that the statute does not list all possible articles of tangible personal property does not render the statute automatically ambiguous, and thus does not require the court to constme it in favor of the taxpayer. ' '

II. BACKGROUND

Certain purchased goods are subject to sales tax to be paid to the Commonwealth.'^ Depending on the nature of such goods, sales tax can be an extremely costly financial obligation.'^ However, not everything is subject to such sales tax; the

' See supra note 2 and aceompanying text. ' Deehert LLP v. Commonwealth, 998 A.2d 575 (Pa. 2010). ' See id at 579. ' Id at 586. ' "Ma t 581. " M a t 582. " 72 PA. STAT. ANN. § 7202(a) (West 2000). " See, e.g., Dechert, 998 A.2d at 576-77 (law flrm paid over $211,000 in

state sales tax for the purchase of canned software licenses).

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Pennsylvania Tax Reform Code'" (Code) imposes a six-percent sales tax only on the "sale at retail of tangible personal property."^^ Therefore, a particular item can be argued out ofthe statute by establishing that the item either was not acquired through a sale at retail or does not constitute tangible personal property.'^ To know whether a certain item falls within the statute and is thus subject to state sales tax, it is important to ftirther define the two cmcial aspects of the statute: "[s]ale at retail"" and "[t]angible personal property."'^

In what is likely an attempt by the legislature to eliminate any conftision as to the particular type of sale on which to impose a sales tax, the definition of a sale at retail is found within the Code.'^ Section 7201(k)(l) ofthe Code^° defines a sale at retail as "[a]ny transfer, for a consideration, of the ownership, custody or possession of tangible personal property, including the grant of a license to use or consume whether such transfer be absolute or conditional and by whatsoever means the same shall have been effected."^' The second requirement (and perhaps the more controversial of the two depending on the nature of the item purchased) for imposing a sales tax—that the item be tangible personal property—is also defined in the Code.̂ ^ This definition, however, is limited in its breadth and can be said to define tangible personal property only in part. ̂ ^ The definition has been expanded upon by the legislature and agency (via additional explanations), and by the courts (through decisions interpreting the definition). The limited statutory definition, included in section 720 l(m) ofthe Code, defines tangible personal property as "[c]orporeal personal property including, but not limited to," a long list of items such as

'" 72 PA. STAT. ANN. §§ 7101-10009 (West 2000). " Id. § 7202(a) (emphasis added). " See id "M. §7201(k)(l). 'Vi/. § 7201(m). " See id § 7201(k)(l) (deflning sale at retail). '°tit.72,§7201(k)(l). "id " See id. § 7201(m) (deflning tangible personal property). " Dechert LLP v. Commonwealth, 998 A.2d 575, 577 (Pa. 2010). " Id at 578.

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goods, wares, merchandise, electricity, prepaid telecommunications, and premium cable, among others.^^

As emphasized above, the definition of tangible personal property includes the language "including, but not limited to."^^ The Supreme Court of Pennsylvania has examined the use of this language in statutes,^^ and it has held that the language "is a clear indication that the [legislature intended to exclude nothing, implicitly or otherwise, by the language which follows those words."^^ In other words, this language is used to broaden the reach of a statute; in the context of tangible personal property, the intention is to allow the already-long list of enumerated examples to expand and include additional items.'̂ ^ Therefore, when one reads the definition to determine if a purchased item fits the definition of tangible personal property, it must be kept in mind that items outside of those explicitly listed may meet the definition as well.

The fact that a statute such as the one defining tangible personal property does not list all possibilities that could fit within the definition does not automatically render the statute ambiguous. ̂ ° When a statute is ambiguous or inapplicable, it must be constmed in favor of the taxpayer.^' However, the Supreme Court of Pennsylvania has held that when a statute does not explicitly list all possible items that fit within its scope, the statute

'^ tit. 72, § 7201(m) (emphasis added). " See id ''' See, e.g., Aldine Apartments, Inc. v. Commonwealth, 395 A.2d 299, 302

(Pa. Commw. Ct. 1978) (discussing the meaning of "the statutory language 'including, but not limited to' "); Pa. Human Relations Comm'n v. Alto-Reste Park Cemetery Ass'n, 306 A.2d 881, 886 (Pa. 1973) (discussing the meaning of the statutory language "including but not limited to").

" Aldine Apartments, 395 A.2d at 302 (emphasis added). /, 998A.2dat581.

"Id " See Pa. Power & Light Co. v. Bd. of Fin. & Revenue, 717 A.2d 504, 507

(Pa. 1998). However, it must be remembered that, while strict construction of statutes imposing taxes is required, the legislature's intent in the specificity (or lack thereof) added in such statutes must not be disregarded. See Dechert, 998 A.2d at 584 n.8 (quoting Commonwealth v. Fithian, 961 A.2d 66, 74 (Pa. 2008)).

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is not automatically rendered ambiguous or inapplicable,''^ and therefore the taxpayer should not be favored in interpreting the statute.

When the Commonwealth Court of Pennsylvania has wresfled with the issue of whether canned software licenses constitute tangible personal property," it has traditionally applied the "essence of the transaction" test.̂ "* This test, however, was unnecessary for the issue in Dechert LLP because it could be answered through statutory interpretation of the deflnition of tangible personal property.''^

While the failure to list all possibilities does not automatically render a statute ambiguous, the statute is unclear in the context of whether canned software licenses fit the definition of tangible personal property because it does not mention software.^^ This does not, however, mean that the statute will be constmed in favor of the taxpayer, as earlier mentioned." What is required first in such an instance is further statutory construction to reveal the legislature's intent.^^

There are several factors to be considered to reveal legislative intent;''^ factors most helpful in determining whether canned software constitutes tangible personal property include the former

^' See. e.g., Gustine Uniontown Assocs., Ltd. v. Anthony Crane Rental, Inc., 842 A.2d 334, 347-48 (Pa. 2004) (holding that a statute not explicitly mentioning contracts for the sale or constmction of real property was not ambiguous).

" See generally Graham Packaging Co. v. Commonwealth, 882 A.2d 1076, 1084-85 (Pa. Commw. Ct. 2005) (applying the analysis from South Central Bell Telephone Co. v. Barthélémy, 643 So. 2d 1240, 1243-44 (La. 1994)).

"̂ The nature of the essence test is used to determine whether a taxable sale of tangible personal property has occurred; it focuses on whether the true nature of the sale is tangible personal property or just a medium of transmission of intellectual property. Graham Packaging Co., 882 A.2d at 1083.

^^DecAer/, 998A.2dat583. ^̂ M at 583-84. " Pa. Power & Light Co. v. Bd. of Fin. & Revenue, 717 A.2d 504, 507 (Pa.

1998) ("[U]ncertainty as to the imposition of the tax must be resolved in favor of the taxpayer," but only afrer efforts at statutory interpretation yield no definitive conclusion).

'' Dechert, 998 A.2d at 584. '' See 1 PA. CONS. STAT. § 1921(c) (1975).

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version of the definition''° and the legislative and administrative interpretations of the definition.'" Despite the definition's silence regarding software, with this guidance, the intent of the legislature—as far as what it intended to include within the scope of tangible personal property—becomes much clearer. When such intent is clear, courts do not hesitate to give deference to the statutory interpretation of the agency charged with its administration.''

III. DECHERTLLP v. COMMONWEALTH

Dechert LLP (Dechert), a law office, paid over $211,000 in state sales tax between November 2000 and December 2003 after it purchased canned software licenses.'''' In light of this, in November 2003, Dechert filed an application for a refund of said sales tax payments from the board of appeals, claiming that these transactions were not taxable.'''' The board of appeals denied a refund,"^ and the Board of Revenue and Finance affirmed that decision.''^ Dechert then appealed to the Commonwealth Court of Pennsylvania, which also affirmed, prompting the appeal to the Supreme Court of Pennsylvania.''^

On appeal, Dechert argued that its purchase of canned software licenses was not taxable because section 7202(a) of the Code"^ only imposes sales tax on tangible personal property;"^

"" 72 PA. STAT. ANN. § 7201(k)(16) (repealed 1997). "' 61 PA. CODE § 60.19 (2011). Agency interpretations, such as a statement

of policy, do not carry the force of law, but they are examined by the court because they very clearly reveal administrative intent. Graham Packaging Co. v. Commonwealth, 882 A.2d 1076, 1079 n.5 (Pa. Commw. Ct. 2005).

"' See generally Rendell v. Pa. State Ethics Comm'n, 983 A.2d 708, 716 (Pa. 2009).

"̂ Dechert, 998 A.2d at 576-77. '*'' Id. at 577. It was conceded by Dechert that a sale at retail had occurred,

and thus, on appeal, it only argued that the canned software did not constitute tangible personal property. Id. at 579.

"̂ Id. at 577. "Id ''Id "* 72 PA. STAT. ANN. § 7202(a) (West 2000). "See id

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canned software, it argued, did not constitute tangible personal property because no type of software was included in the definition of tangible personal property. ̂ ° To support its claim that canned sofhvare did not constitute tangible personal property, Dechert advanced three arguments: (1) software is copyrighted material, so when a developer sells copies by license, it retains ownership; (2) therefore, due to the lack of ownership in Dechert, it had a mere right to use the processes embodied in the software, which is found on a disk that alone has no value and thus cannot be tangible personal property; and (3) consequently, the payment for the canned software was only consideration for the right to use intangible intellectual property.^' In contrast,Uhe Commonwealth simply argued that because the definition of tangible personal property includes the language "including, but not limited to," canned software can—and should—^be constmed to fit the definition. ̂ ^

A. Majority Opinion

To begin its quest to uncover the legislative intent in drafting the definition of tangible personal property," the court examined the language of the statute.̂ '* The definition of tangible personal property enumerates several examples that fit the definition and thus are subject to state sales tax when purchased.^^ Dechert alleged that, because the language of the statute does not include canned software, canned software was not intended by the legislature to qualify as tangible personal property.^^ However, the court disagreed and instead held that, despite the listing of other examples of tangible personal property, the legislature's failure to list canned software in the definition did not require the court to declare that canned software does not constitute tangible personal

'" See id. § 7201(m) (providing examples of tangible personal property). '̂ Dechert, 998 A.2d at 578.

" Id. at 579. " See 1 PA. CONS. STAT. § 1921(;a) (1975) (stating that the goal of the court

in interpreting a statute is to ascertain, and then give effect to, the legislative intent).

^' Dechert, 998 A.2d at 579. "Seetit. 72, §7201(m).

t, 998 A.2d at 580.

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property.^' The court focused not on the list of examples in the definition, but rather the presence of the language "including, but not limited to."^^ This court addressed this issue twice in the past, leading the court to accept two basic assumptions when this language was present: the use of "including, but not limited to" before a list of enumerated examples in a statute (1) meant the statute was "broad and all-inclusive," acting as words "of enlargement and not limitation,"^^ and (2) is "a clear indication that the [l]egislature intended to exclude nothing . . . by the language which follows those words."

Dechert next argued that the legislature's failure to list all possible examples of tangible personal property in the definition automatically renders the statute ambiguous, and therefore it should be construed in Dechert's favor. ̂ ' The court, however, quickly disposed of this argument by relying on precedent that addressed a similar argument; ̂ ^ as mentioned earlier, this precedent states that a statute which does not explicitly mention all possible examples does not render the statute ambiguous because the legislature is allowed to speak broadly and open the door to later interpretation in regard to items left out—such constmction is appropriate.^^

Failing on these two initial hurdles, the cmx of Dechert's argument rested on the allegation that canned computer software simply should not fit within the definition of tangible personal property.^" As mentioned, the definition listed numerous examples without mentioning any computer software; Dechert argued that this absence now renders the statute unclear.^^ Because ofthe lack of clear language on which to rely for this issue, the court was

" M a t 581. "Id " Pa. Human Relations Comm'n v. Alto-Reste Park Cemetery Ass'n, 306

A.2d 881, 885-86 (Pa. 1973). " Aldine Apartments, Inc. v. Commonwealth, 395 A.2d 299, 302 (Pa.

Commw. Ct. 1978). '̂

, " Gustine Uniontown Assocs., Ltd. v. Anthony Crane Rental, Inc., 842

A.2d 334, 347 (Pa. 2004). " Id at 347. ^"Dec/zeri, 998 A.2d at 582. " Id at 584.

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required to engage in extended statutory constmction.^^ After doing so, the court held that the canned software licenses that Dechert purchased did in fact constitute tangible personal property and thus was subject to state sales tax.̂ ^

The court began its analysis by laying out the guidelines set forth in the Statutory Constmction Act̂ * for ascertaining legislative intent when the words of a statute are unclear. ̂ ^ Two of the enumerated factors for ascertaining legislative intent proved to be determinative for the majority: the former version of the statute and the administrative interpretation of the statute.^"

The former version of section 7201 of the Code (pre-1997) defined sale at retail to include "the rendition for a consideration of computer programming services."^' The definition of "computer programming services" included (and thus enabled the imposition of a tax upon) custom computer programs, but excluded canned computer software.'^ When this version of the statute was repealed, the sales tax on custom computer programs was eliminated; however, since canned computer software was not included, it is not part of this tax elimination and cannot be deemed exempt from tax under this argument. ̂ ^

After the adoption of the new version of the statute, the Department of Revenue (Department) issued a statement of policy (an interpretive statement) that spoke directly to the issue of the tax treatment of a sale of canned software.̂ "* First, the Department

" Id. The court could have relied, as the commonwealth court did, on Graham Packaging Co. v. Commonwealth, 882 A.2d 1076, 1086 (Pa. Commw. Ct. 2005), which applied the essence of the transaction test to determine if a transaction was one of tangible personal property; however, the court felt such a test was unnecessary and instead decided to resort to statutory construction to determine whether canned software constitutes tangible personal property. Dechert, 998 A.2d at 582-83.

" Id at 586. " 1 PA. CONS. STAT. §§ 1501-10009 (1975). " See id. § 1921(c). ™ Dechert, 998 A.2d at 584-85 (citing tit. 1, § 1921(b)-(c)). " 72 PA. STAT. ANN. § 7201(k)(16) (repealed 1997). " See Dechert, 998 A.2d at 585 (discussing what was included within the

definition). "Id '" See 61 PA. CODE § 60.19 (2011).

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restated the fact that certain previously taxed computer programs and systems were now no longer subject to sales tax.̂ ^ Then, the Department went on to very clearly state that "the sale at retail. . . of . . . canned software . . . remains subject to [s]ales and [u]se tax as the sale at retail or use of tangible personal property and is not affected by the repeal of the old version of the statute.^^ This statement is important for a number of reasons. First, this very explicitly states that the Department considers canned software taxable tangible personal property. ̂ ^ Second, and most importantly, the use of the word "remains" shows that the Department considered canned software taxable tangible personal property not only under the current version, but also under the former version of the statute. ̂ ^ This settles the debate over whether the exclusion of canned software from the list of included computer programs in the former statute was purposeful; the repeal ofthat version had no effect on canned software's taxability then or

To support its decision further, the court went on to explain that when-it constmes statutory language, the usual practice for the court is to afford substantial deference to agency interpretations.^" From the above' analysis, it is quite clear that the agency interpreted, at that time and in the past, the definition of tangible personal property to include canned software; therefore, the court must follow its lead and hold the same absent a reason to hold otherwise.^'

B. Concurring Opinion

Writing in concurrence with this self-proclaimed "close call," Justice Saylor expresses his sympathy toward Dechert and his belief in the need for a revised statute.^^ Justice Saylor believed

"M " Id. (emphasis added). " See id. " Dechert,998 A.2àat585. "Id "id at 586 (citing Rendell v. Pa. State Ethics Comm'n, 983 A.2d 708, 716

(Pa. 2009)). " Id " Id. (Saylor, J., concurring).

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that the statute would be better-served if the legislature's intent to include intellectual property work product within its scope was expressed in the statutory text.^^ In light of the definition's failure to mention intellectual work product, he feels sympathetic toward Dechert in this case in that the definition's broad, sweeping language ("including, but not limited to") requires, for example, comparison between enumerated telecommunications service and unenumerated canned software.*'* Justice Saylor finds such comparison unmanageable and inappropriate.^^

Nonetheless, Justice Saylor agrees with and finds conclusive the statutory constmction tools that the majority relies on: namely, the former statute and the agency's interpretive statement of policy. ̂ ^ After review of these sources of" intent, he believes substantial deference to the agency was appropriately given.*'

C. Dissenting Opinion

In dissent. Justice Eakin argues that the use of the essence of the transaction test is the most logical and practical approach to this question.** Under this test, he believes a license to use canned software does not constitute tangible personal property.*^ Justice Eakin takes a much more technical approach to this issue by making a valiant effort to closely examine canned software and determine its tme nature in an attempt to prove it is intellectual property. ̂ °

The main premise behind Justice Eakin's determination that canned software does not constitute tangible personal property is that the software is not a physical thing.^' Instead, he explains software as "a set of instmctions to the computer in the form of binary pulses [gathering] in the computer's memory."^^ These

84 Dechert, 998 A.2d at 586.

" Id. ; see supra notes 64-70 and accompanying text. " Dechert, 998 A.2d at 586 (Saylor, J., concurring). " Id at 587 (Eakin, J., dissenting). " Id. ' "Mat 588. "Id "Id

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binary pulses do not take up space on the computer, "but instead simply reorder the configuration of electrons already on the computer."^^ Essentially, Justice Eakin was saying that the essence of the canned software is intellectual property; "[t]he 'fact that tangible property is used to store or transmit the software's binary instmctions does not change the character of what is fundamentally a classic form of intellectual property.' "̂ '* Justice Eakin then continues on to give his own spin on the nature of software and its interaction with the computer on which it is used. ^ He explains how people are incorrect when they think of loading a computer program onto a computer as adding something to that computer. ̂ ^ He then emphasizes, again, how software does not add anything to the computer, but rather "merely rearranges what is already there."''

His purpose in examining the tme nature of software and its function when loaded onto a computer—which is not to add anything to it—is to show that under the essence of the transaction test, canned software cannot constitute tangible personal property.'^ While the software is contained on a tangible medium—a disk—the tme nature or essence of the software is its ability to reconfigure the electrons already found on the computer; the tme essence, therefore, refiects intellectual property only.^' Accordingly, Justice Eakin holds that "a license to reconfigure one's existing computer electrons via canned software does not involve tangible property, and is thus not subject to sales tax pursuant to" section 7202(a) of the Code.'°°

" Dechert, 998 A.2d at 588. " Id. (quoting Ne. Dataeom, Inc. v. City of Wallingford, 563 A.2d 688,

691 (Conn. 1989)). "Id "Id "Id " Id. at 587-88. As further illustration of his point that software does not

add anything to the computer, in perhaps more relatable terms for most people. Justice Eakin goes on to draw an analogy between golf and software; he compares a computer taking directions from software to a golfer taking instruction in a lesson, where both adjust the functionality of the object involved, but add nothing tangible to it. Dechert, 998 A.2d at 588.

"Id "'Id

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IV. EVALUATION

Considering the complex nature of software and the education and training required to understand it, the court acted responsibly and appropriately in eventually giving substantial deference to the agency's interpretation. A judge's competence is limited when it comes to very technical issues. It would be very rare for a judge to have a background in software and be able to relate to it with the level of expertise that is required to tmly "get it." Agencies, however, are full of experts in their respective fields that work, for the most part, only in that field.'*" It is the job of the agencies to understand certain fields'"^ (such as software) that an ordinary person cannot grasp; they can then convey such understanding to laymen. The agency in Dechert spoke directly to the issue at hand and very clearly declared that canned software constitutes taxable tangible personal property.'"-^ Therefore, the court here did justice in deferring to the agency interpretation and holding that canned software constitutes tangible personal property subject to sales tax under section 7202(a). Who is a court to tell the agency that it is wrong when it comes to the agency's area of expertise? Simply put, understanding software is beyond the scope ofa law degree.

Determining the nature of software poses a "difficult question" for the court.'°" When the court admits that a question is difficult for it, there is even more reason for it to defer to the agency and refrain from attempting to understand technologically complex topics. This, however, was a question that Justice Eakin felt confident in answering in his dissenting opinion.'**^ The justice does make valid points that could potentially formulate the correct approach to canned software; however, there is no conclusive evidence that suggests his viewpoint should be accepted over that

"" See, e.g., Falasco v. Pa. Bd. of Prob. & Parole, 521 A.2d 991, 994 n.6 (Pa. Commw. Ct. 1987) (discussing, in the context of official notice, experts in the agency's field in regards to facts contained in reports and files).

'" See, e.g., id. (recognizing the special competence of agency experts in particular fields).

See supra notes 67-70 and accompanying text. '" See Dechert, 998 A.2d at 583 (quoting Graham Packing Co. v.

Commonwealth, 882 A.2d 1076, 1086 (Pa. Commw. Ct. 2005)). "' Id at 588 (Eakin, J., dissenting).

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of the agency. The two viewpoints are in direct conflict, and therefore one must be chosen over the other. Which should be followed? I must tum, again, to the concept of agency expertise. Absent ever-convincing evidence, it is difficult to ignore the agency's interpretation that canned software constitutes tangible personal property.

Such convincing evidence was not offered by Justice Eakin in his dissent. Sure, he lays out a number of cases that applied the essence of the transaction case and found canned software not to constitute tangible personal property, but they are all from other jurisdictions."'^ Not only is this precedent not binding on Pennsylvania courts, but it is also possible that the legislatures and agencies of those states express a clear intent to treat canned software in that manner.'"^ As we have seen in Pennsylvania, the legislature and agency have clearly expressed their intent to hold otherwise.'°^ So, perhaps these courts were appropriately (in the software context) furthering the legislative intent; the majority court here did the same.'°^ Further, the Commonwealth Court of Pennsylvania addressed the same issue and found canned software to be tangible personal property. "° In sum, regardless of how other jurisdictions treat canned software, both the courts and the legislature in Pennsylvania have spoken clearly regarding canned software, and thus reliance on other jurisdictions that hold to the contrary is inappropriate. This does not even begin to represent the

"" Id. at 587 (citing Ne. Datacom, Inc. v. City of Wallingford, 563 A.2d 688, 691 (Conn. 1989); First Nat'l Bank of Springfleld v. Dep't of Revenue, 421 N.E.2d 175, 178 (111. 1981); CompuServe, Inc. v. Lindley, 535 N.E.2d 360, 365 (Ohio 1987); Dallas Cent. Appraisal Dist. v. Tech Data Corp., 930 S.W.2d 119, 123 (Tex. App. 1996)).

'*" Because each of these cases used the essence of the transaction test to determine the taxability of canned software, the court in each did not delve into the legislative intent (at least in the written opinions) behind the respective jurisdictions' deflnition of tangible personal property. Therefore, this proposition stands as a proposal for a possible explanation; it is quite possible that such deference to legislative intent would occur in each of these jurisdictions, and perhaps that intent could be the opposite of what it is in Pennsylvania.

"" See Dechert, 998 A.2d at 581. "" See supra notes 68-79 and accompanying text. "" See Graham Packing Co. v. Commonwealth, 882 A.2d 1076, 1086-87

(Pa. Commw. Ct. 2005).

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kind of conclusive evidence that would be required to go against clear legislative and agency intent.

Justice Eakin further examines what he believes to be the true nature of software in his discussion of binary pulses and electron reconflguration; ' ' ' again, these arguments—while possibly tme— appear to lack support from conclusive evidence that would warrant his view on canned software being accepted over that of the majority, legislature, and agency. It appears that Justice Eakin found these arguments involving binary pulses and the lack of any addition to the computer from the above-mentioned cases from other jurisdictions. ' ' He cites to these cases for each general idea, and then he pieces them all together in a personal narrative (without citation) that formulates the basis of his belief as to why canned software cannot constitute tangible personal property."^

His explanation, however, is unconvincing for two reasons: (1) the general propositions he uses are found in cases from other jurisdictions, "'' and (2) when he puts the numerous ideas together to formulate his full argument, there is no citation to authority at all, which raises concem."^ When dealing with such a complex subject as software, specialized knowledge is required. When Justice Eakin argues without authority, it seems as though he is making these arguments based on personal knowledge of software. Does he have such knowledge? One cannot tell offhand, but being familiar with legal education, it is questionable; the agency, on the other hand, almost certainly does.

In light of the above discussion, one can readily accept that the majority was correct and more convincing than the dissent and that canned software should indeed qualify as tangible personal property. However, let us consider for a moment what it would be like if substantial deference to legislative and agency intent in this context was inappropriate. In this instance, the court would be required to do an independent evaluation of the issue in each and every case without influence from the legislature or agency; more

' " Dechert, 998 A.2d at 588 (Eakin, J., dissenting). '"See id '"Id ' " See supra note 106 and accompanying text. '" See Dechert, 998 A.2d at 588 (Eakin, J., dissenting) (describing the

nature of software without any citation to authority).

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or less. Justice Eakin's dissent is an example of this approach. Judges would be required to examine closely and understand the nature of the subject matter, just as Justice Eakin put forth great effort in this case to figure out how software "works." "^ Some may favor this approach, as it gives the judiciary more authority to work independently and freely; perhaps substantially deferring to agencies makes the judiciary too dependent and powerless.

However, in contexts such as software and other technical matters, the courts simply lack the time and the competence to effectively understand and adjudicate these matters. There is a great danger in the judiciary refusing to defer in such contexts; although making valiant efforts at understanding the particular subject mafter with limited knowledge of it, the court could hand down decisions incorrectly, serving an injustice. Further, requiring the court to extensively examine each and every case would work against the theory of efficiency in the courts, bogging down an already overloaded docket. Therefore, it is more effective in such contexts for the courts to "take one on the chin" and defer to the legislative and administrative intents if they can be revealed.

V. CONCLUSION

For the reasons stated above, when handling cases involving technologically complex subject matter, it is appropriate for courts to go to great lengths to reveal the legislative and administrative intents as well as the subsequent interpretations of such and then defer to these. Dechert LLP v. Commonwealth involved whether or not canned software should be considered tangible personal property rather than mere intellectual property for sales tax purposes."^ After extensive statutory constmction analysis, the court appropriately deferred to the agency's statement of policy, in which the agency explicitly stated that canned software constituted tangible personal property and thus was subject to sales tax."* Absent evidence of their expert understanding of software (superior to that of the agency), the courts are not equipped with

'"See id '" id. at 576 (majority opinion).

M. at 585-86.

2012] PENNSYLVANIA ADMINISTRATIVE LAW 439

the appropriate tools to tackle the question of how software works. The agency deals with such matters on a routine basis, and therefore it is appropriate for the courts to step aside and let the agency take the lead.

Joel N. Patch*

J.D. Candidate, Widener University School of Law, May 2012. This survey is dedieated to all of my family, friends, and loved ones that have helped me, in all respects, to get to where I am today. Speeifieally, I thank my parents, Joe and Vicki Patch, for teaching us as children that the good things in life come to those that work hard for what they want, and then for supporting and encouraging us every step along the way toward achieving those goals. I also thank my brother and sister, Jordan and Alexia, for being such positive role models growing up. Watching them become so successful in achieving whatever they had aspired to do pushed me to do the same; they are the epitome of older siblings leading by example, and they've left quite large shoes to flll behind them. While there is not the space to thank everyone that I'd like to, I would last like to thank a certain someone watching from upstairs, who was my biggest fan and who taught me to "always strive for the best" in whatever I did. I can't think of a better flve-word motto by which to live life.

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